"USDT Black Paper" — Volume 1: The Stablecoin Illusion

Based on recent regulatory developments, I discussed with old friends in the group about some possible scenarios. I found that some of these people, after making a little profit, start to talk tough and are more aggressive than leverage, completely different from the “bro, help me out” state of the past. Based on this, I wrote a series of five articles. The titles are:

Volume One: The Illusion of Stablecoins

1. “The USDT in your hand might not be dollars, but a consensus scam”
2. “Stablecoins are becoming unstable: The truth 99% of users ignore”

Volume Two: Systemic Risks of De-pegging 3. “USDT De-pegging Countdown: The five minutes before the storm hits, you must know” 4. “One de-pegging can destroy the entire market: A review of the most realistic black swan chain collapses”

Volume Three: The One Fish Four Eats Strategy 5. “One Fish Four Eats: The cruelest and most profitable high-margin model in crypto (Practical Breakdown)” 6. “Experts only do one thing: Using ‘De-pegging → Re-anchoring’ to earn four rounds of profit”

Volume Four: Offshore Arbitrage 7. “Overseas identity = a weapon for huge profits: A complete analysis of arbitrage channels unseen domestically” 8. “How do overseas players precisely profit during USDT de-pegging?”

Volume Five: The Iron Window Line 9. “Retail investors lose money, practitioners go to jail: The five real ‘Iron Window Lines’ in crypto” 10. “Why are you losing money trading crypto, while they might be breaking the law? The industry boundary truth revealed”

Volume One

“Stablecoins are not currency, but a promise of value. Once the promise loosens, the word ‘stability’ becomes an illusion.” Do you really understand USDT? Most people think USDT = 1 USD. But in fact, what you hold is: a promise + a black box + an unaudited asset portfolio. Stable? It depends on reserves, redemption mechanisms, and liquidity working together.

1. The three underlying models of stablecoins, understood in one diagram

1. Fiat-backed Reserves in cash, government bonds, etc. Risk: reliance on custodial banks + audit authenticity.
2. Crypto-collateralized Over-collateralized with ETH, etc. Risk: volatility leading to liquidation chains.
3. Algorithmic Supply regulated by smart contracts. Risk: death spiral in extreme market conditions. USDT = Fiat-backed + high-yield assets, not entirely cash.

2. Reserve composition is more important than price The core risk of USDT comes from two points: • Lack of transparency in reserves • Reserves are not all cash but include commercial paper, BTC, gold, and other illiquid assets If users collectively redeem, reserves may not be sold in time → price de-pegging.

3. Redemption ability determines the “gold content” of stablecoins The ability to redeem 1:1 for USD is the bottom line of stablecoin value. The smoother the redemption channels, the firmer the peg. The more restricted the redemption, the more likely to trade at a discount.

4. Three major signs before de-pegging • Audit lag • Changes in reserve structure • Abnormal large on-chain transfers Any two signals appearing simultaneously should raise alertness.

5. What ordinary people should do ✔ Do not put all assets into a single stablecoin✔ Regularly check audits and reserve disclosures✔ Maintain fiat liquidity✔ Avoid high leverage